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Economic Growth, SAPs, and Aid: Oh My! A History of the Global Development Industry

The concept of development implies positive change, and it is clearly an ideal toward which individuals, groups, and nations strive. But the term carries much more baggage than that. The Western world’s conceptualization of development—unilinear growth, evolution, or maturation toward an ever more perfect form—has its roots in evolutionary theories of the nineteenth and early twentieth centuries as well as the Enlightenment view of unending progress. Development as a global project, however, emerged in the aftermath of World War II. At this time, development became synonymous with economic growth, and the ideal was modeled in the likeness of industrialized nations, particularly the United States.

Anthropologist Riall Nolan succinctly describes the technicist paradigm that took shape early on: “The ends sought were primarily material, strategy was derived from Western economic theory, and the means consisted of Western capital combined with Western technology and know-how” (Nolan 2002:45). This legacy of ideas still exists policy and practice within the contemporary multibillion-dollar development industry, and though alternative approaches to development that are human-centered, locally based, and sustainable are gaining ground, it’s helpful to understand the history of development to better see where our efforts to create NEW Livelihoods fit in.

Towards the end of World War II, The Bretton Woods agreement signed by financial leaders of forty-four countries launched the economic approach to development. This agreement established mechanisms—including the International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, now part of the World Bank)—to rebuild the economies of Europe and reassert political stability. Through the Marshall Plan, the European economies received large infusions of capital to stimulate rapid economic growth and were soon thriving again.

After the war, poverty was “discovered” as a global phenomenon. Western leaders felt that extending the Marshall Plan’s program of development to former and transitional colonies could help these nations “catch up” with industrial nations, while simultaneously stopping the flow of communism. Indeed, President Kennedy declared in 1961, “Foreign aid is a method by which the United States maintains a position of influence and control around the world and sustains a good many countries which would definitely collapse or pass into the communist bloc” (cited in Hancock 1989:71).

In the 1950s and 1960s, development in the newly labeled “Third World” emphasized macro-economic planning and large projects for sector growth (particularly in industry), infrastructure, and large-scale agriculture. In Thailand during this time, which is my area of expertise, Prime Minister Field Marshall Sarit (a US ally) followed precisely this model of modernization in order to promote national security against the communist insurgency growing in the region.

The language and assumptions of this early development era were reminiscent of colonial days. Setting the standard for economic development, President Truman declared that the degree of “civilization” in a country could be measured by the level of its production. And like the colonial era, the developers would be the United States, Great Britain, and other prosperous European nations, which had “superior knowledge” and resources.

The early modernization school of development proposed that in order to promote true economic development, the obstacle of “traditional” culture (which lacked the necessary Western values of gain and achievement) must be overcome. In Arthur Lewis’s modernization model, the market sector would expand through the eradication of the “traditional economy,” whereby the “backwards sector” (i.e., subsistence agriculture) would provide labor at below-market cost to the swelling capitalist sector. When labor was no longer abundant, wage rates would rise, signaling the complete absorption of the subsistence sector by the market.

This process was hailed as development. Though this modernization approach of the 1950s and 1960s has fallen out of popular development discourse, such ideas do not seem wholly out of place in today’s market-centric environment.

By the early 1970s, development planners realized that some economies simply were not “taking off” as projected by development economists (e.g., Rostow 1960); in cases where growth was occurring, there were problems in distribution of the benefits.

Clearly a shift in thinking and practice was needed. When Robert McNamara became president of the World Bank in 1968, he brought with him a new concern for equity issues and the needs of the very poor. In 1976, the International Labor Organization (ILO) formalized the basic needs approach introduced by McNamara. Ivan Illich observes that through this approach, “Needs became a powerful emblem in spite of the fact that, for the mainstream economist, ‘need’ is a non-word” (1992:88).

During the 1970s, women, communities, and small farmers all posed new problems to be tackled with special strategies. Development was continually repackaged as it met with failures, absorbed criticisms, and endeavored to appease donors (Escobar 1995). This was a decade of tremendous innovation in alternatives for local-level development, but there were rumblings that development agencies were straying from the financial and technical aspects of development for which they had expertise.

Trouble hit the development industry with the debt crisis of the early 1980s. Aid to developing nations over three decades had come in the form of loans at or near market rate that became increasingly difficult to repay. In 1984, several Latin American countries defaulted. Furthermore, due to burdens of loan repayment (compounded by continued population growth and the global oil crisis), efforts in poverty alleviation were not progressing as hoped (So 1990).

Under the Reagan administration’s trend toward privatization and market reform, the IMF and the World Bank designed and implemented structural adjustment programs (SAPs) to assist economies faltering with debt. To receive bailout loans, national governments were required under SAPs to cut spending in social sectors like health and education, focus resources on private-sector export production, and institute democratic reforms. In theory, these governments would then be able to repay their loans with an influx of foreign capital attracted to political and economic stability. These reforms would in turn open new markets for Western nations.

On the downside, developing nations increased their dependency on fickle foreign capital and global markets, and the poorest people in these nations felt the worst effects of macroeconomic reform (e.g., Harrison 1997). By necessity, local-level development projects that began in the 1970s continued through the 1980s and 1990s in order to help poor people adjust to the burdens of SAPs.

Criticisms of the development industry have always come from academics; in the 1990s, the academics were joined by growing public outcry expressing dissatisfaction with five decades of development that exacerbated rather than alleviated poverty and inequality. Popular protests included the boycott against Nike for employing sweatshop labor and large demonstrations at the World Bank and IMF meetings in Seattle in 1999 and again in Genoa the following year, as well as the fight for global debt relief led by international pop star Bono of U2.

The response to unsatisfactory development outcomes has often been to bolster the industry with capital. During the World Bank and IMF spring meetings in 2002, President Bush announced his intention to increase foreign aid by $5 billion a year (within three years)—the largest increase in thirty years. But the question remains: Whose aid is it? Aid often serves the agenda of the donor and comes with strings attached, and as already learned decades ago, the benefits do not trickle down to the ones who need it most, and when it does, it may not address the long-term issues of poverty. So without significant changes in the business of development, aid is not only less effective that it can be; it can also exacerbate existing problems.

Changes are certainly occurring. Most notable is the work of the United Nations: its Human Development Index, which emphasizes other factors besides economic ones that affect people’s wellbeing; as well as its Millennium Development goals (and the Post-2015 Agenda), which focuses attention on poverty alleviation. There is much to be excited about…yet this legacy of economic growth, structural adjustment, and aid still presents obstacles both in thinking and in reality.

The post that follows outline a theoretical yet grounded development approach founded on criticisms of and alternatives to mainstream development put forth by anthropologists and other social scientists. It is my understanding of the “right” way to do development to raise ordinary people’s quality of life.

*A version of this post was originally published in Essen, Juliana (2005). “Right Development”: The Santi Asoke Buddhist Reform Movement of Thailand. Lanham, MD: Lexington Books.